Sony has provided more information about the release of its PS VR2 through its official blog. According to its latest blog post about this product, the new VR headset, which is the main part of a PS VR2 bundle or package, will hit the market on February 22, 2023. The retail price of the entire bundle is now set at US$549. The bundle comprises the PS VR headset, two Sense controllers, and a set of stereo headphones. While the price of the PS VR2 is higher than that of the PS5 (i.e., US$499 for the standard PS5 and US$399 for the Digital Edition of the console), it is worth noting that the previous generation of the PS VR headset—the PS VR—priced the same as the PS4 Pro (i.e., US$399). Also, if we include two previous-generation PS VR controllers (i.e., the Move controllers) that cost US$49 each, then consumers would pay a total of US$497. Hence, the price difference between the older PS VR bundle and the PS VR2 bundle is almost US$50; and this is actually a fairly reasonable reflection of the cost of the new hardware. After all, the PS VR2 and the Sense controller incorporate quite a few new features and components such as eye-tracking and haptic feedback.
Generally speaking, Sony’s plan is not about making the PS VR2 more expensive than the latest PS console, per se, but rather about following a pricing strategy that is specific to its VR devices. It should be pointed out that for the previous generation, Sony sold the headset separately from the supporting controller. There was no bundle back then. Now, the company only sells the PS VR2 in a package deal that includes the headset and two motion controllers. Because of this change in sales strategy, consumers feel a price hike. As for the possibility of Sony selling standalone PS VR2 headsets in the future, TrendForce believes such move will be unlikely mainly because Sony is focusing on gaming experience rather than instinctively trying to raise the market penetration rate of the PS VR2.
When the PS VR was launched, the gaming experience that it provided was affected by the low market penetration rate of the PS4 Pro. Learning from this lesson, Sony has removed forward compatibility from the hardware and software designs of the PS VR2. Therefore, the combination of the PS VR2 bundle and the PS5 console is now the only way to get the most ideal VR gaming experience from Sony. And with this approach, Sony hopes to raise the market penetration rate of the PS VR as a whole. Moreover, the gaming experience for users of the PS VR2 will be mainly immersive. So, in addition to the specially designed video and audio content, the PS VR2 will also feature a wider range of operations and a greater variety of feedback mechanisms. Additionally, the game content for the PS VR2 will be designed specifically for the Sense controller. All these details again reveal a strategy that insists on a total package for consumers.
PS VR2 Shipments Are Forecasted to Reach 1.6 Million Units for 2023
While pricing will definitely affect the sales volume of the PS VR2, it is also important to remember that the game console market targets a just few particular subsections of consumers. VR gaming is thus a narrow segment within this niche market, and VR gaming devices are never going to reach the same scale in sales when compared with the more typical consumer electronic devices. Furthermore, game console users as a group tend to be willing to spend more than do most other consumers. Hence, providing a proper gaming experience is a much more effective way to grow the VR gaming market as opposed to trying to keep hardware prices down.
And for the reasons described above, we can also anticipate that the cumulative sales volume of the PS VR2 will unlikely be comparable to that of Meta’s Quest 2, which has reached the level of tens of millions. However, the PS VR2 should have no problem reaching the 5~10% market penetration rate that is already attained by the PS5. TrendForce projects that the cumulative total sales volume of the PS5 console will surpass 30 million units by the end of 2022. Considering the impact of the weakening economy on consumer spending and the lack of VR games in the initial period of adoption, some gamers will put off purchasing the PS VR2 until they believe the time is right. Still, shipments of this device are forecasted to reach 1.6 million units for 2023. The key factor that could push sales of the PS VR2 even higher is whether its games have the content that complements its hardware and thus provide an exceptionally immersive experience.
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Sony stated in an earnings call that PS5 shipments totaled only 11.5 million units in the last fiscal year (2Q21 to 1Q22), missing the target of 14.8 million units. Increasing PS5 game console production will be the company’s main task for now and sales are expected to rise to 18 million units this fiscal year. In addition, Sony also stated that it will strengthen live broadcast services and extend game services to other devices, as well as step up its VR business.
PS5 sales will continue to grow in 2022 but market instability remains
Although Sony had high expectations going into the launch of the PS5 and market reception was good, the PS5’s final sales volume was stifled by production hamstrung as a result of component shortages. Therefore, Sony specifically mentioned in the Business Segment Briefings, comparing US retailer events sold PS4 to the PS5, the PS4 sold an average of 6 units per minute, while the PS5 now sells approximately 1,000 units per minute, demonstrating the strong market demand for PS5.
At the beginning of the PS5 release, there were reports of an insufficient supply of components. When the PS5 was released at the end of 2020, it had been in production for several months and accumulated a certain amount of inventory. Even if production capacity was in short supply when the console was released, Sony could still meet some market demand in the first year with its inventory and then increase production capacity in 2021 to make up the difference. However, in 2021, semiconductor production capacity was also in short supply. Not only game console products, but numerous other products experienced a shortage of components. Naturally, Sony was unable to further increase the supply of PS5 consoles, resulting in PS5 sales coming in lower than originally expected. Sales even declined in 1Q22. As the imbalance between supply and demand of semiconductors gradually eases in 2022, Sony predicts that PS5 production will begin to increase to fulfill market demand and announced a sales target for this fiscal year of 18 million units.
Even so, there remain many uncertainties in 2022. First of all, although pandemic lockdowns in China have yet to directly affect the assembly and production of game consoles in Shandong, the risk of potential fallout still exists given the uncertainty of pandemic development. Secondly, demand from the overall consumer market may be exhausted in 2022. This is due to unfavorable factors such as inflation, wars, pandemics, and rising energy prices. Disposable income in 2022 is forecast to shrink as a result and force consumers to give up some non-essentials or delay purchases. So this may cause consumers to delay replacing their current console with a PS5. A combination of the original dearth of PS5 supply and the impact of the scalper market seriously depleted the stock of products on the market. Some consumers who were eager to enjoy new console games may have switched over to buying an Xbox Series X/S first which may contribute to PS5’s 2022 annual sales volume falling short of Sony’s estimate. TrendForce expects that volume will only reach 14.34 million units. Even if this forecast references the range of Sony’s fiscal year (2Q22 to 1Q23), estimated sales volume will only increase to 16 million units.
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Sales of gaming consoles underwent palpable growth in 1H21 thanks to the release of new consoles as well as demand that had previously been deferred in 2020 due to material shortages. Moving into 2H21, however, disruptions in logistics/transportation and the further spread of the COVID-19 pandemic led to less-than-expected sales volumes during the holiday season, estimated in total annual sales of 51.257 million consoles for the whole 2021. While the Nintendo Switch remained the market leader with sales of 26.19 million units, about 14.31 million units of the Sony PS5 were sold, compared to 8.14 million units of the Microsoft Xbox Series X|S.
As the aforementioned issues related to the pandemic, logistics, and shortages gradually become resolved, TrendForce expects gaming console sales for 2022 to reach 57.94 million units, a 13% YoY increase. Although the Switch will likely retain its market leadership, sales will hold flat and begin to show signs of decline, as the console enters its fifth year. TrendForce expects Nintendo to release a refreshed version of the Switch console in early 2023 in response to gradually declining sales.
After expanding the PS5 user base, Sony is expected to make a heavy push for its next-gen VR products, the PS VR 2, which will likely be released at the end of 2022. At the same time, Sony will continue to strengthen the development of both games with VR content and VR-related accessories, which can further improve the gaming experience of PS VR users. Microsoft, on the other hand, has placed an emphasis on not only its Xbox Cloud Gaming streaming service, but also the acquisition of game development studios to increase its exclusive game titles, attract consumers, and weaken its competitors. Hence, Microsoft may potentially release its own affordably priced game streaming boxes this year to be used in conjunction with cloud-based game streaming services. However, due to the nature of Xbox Cloud Gaming as a cross-platform service compatible with, among other devices, the previous-gen Xbox One, consumers may in turn be less willing to purchase the Xbox Series X|S, thereby lowering annual sales of these consoles and widening the sales gap between the Series X|S and their competitors.
Switch-like handheld gaming consoles will continue to appear
Rising sales of the Nintendo Switch consoles have led other brands to release similar products in response. In addition, the barrier to entry in the handheld gaming console market has been significantly lowered now that Qualcomm is able to supply chips, reference designs, and dev tools. With brands now willing to cross over to this space, the market may see the emergence of multiple Switch-like handheld gaming consoles in 2022.
Unlike prevailing gaming consoles which have closed ecosystems, products such as the Steam Deck are based on open platforms that are compatible with gaming contents and streaming services available on PCs and mobile devices. As such, these handheld gaming consoles are not an absolute requirement for consuming game content, and consumers may still prefer using their existing PCs or mobile devices for such content.
As well, brands that look to release their own handheld gaming consoles will not look to compensate for reduced hardware profitability through software sales. As a result, these consoles will be priced relatively high, at an expected US$399 and up, which may negatively affect consumers’ willingness to purchase them. Even if certain brands make an attempt at handheld gaming console production, sales of these consoles are expected to remain mediocre, without making much of an impact on the current gaming console market.
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At Gamescom 2021, Microsoft announced that it will extend its game streaming service (Xbox Cloud Gaming) from PC and mobile devices to game consoles starting on Christmas Day this year. In addition to supporting the new consoles Xbox Series X/S, Xbox Cloud Gaming will also be compatible with the Xbox One models. TrendForce’s investigations indicate that the Nintendo Switch remains the mainstream option in the consumer market and is expected to reach 30.13 million units in annual sales for 2021. The PlayStation 5 consoles, which have been in severe shortage since its release, will take second place with annual sales of 17.61 million units, while the Xbox Series X/S will take third place with 8.66 million units sold this year.
Xbox One owners will comprise the majority of Xbox Cloud Gaming users on game console platforms
Microsoft has been making long-term efforts to promote cloud-based game streaming services. One such example includes the improvements that it made to its web browser to better support Xbox Cloud Gaming and permit the service to run on PC and mobile devices, with official PC and iOS releases taking place in June 2021. Microsoft’s announcement of game console compatibility with Xbox Cloud Gaming represents yet another step taken by the company towards its goal of extending game streaming services to all platforms.
As previously mentioned, Xbox Cloud Gaming supports not only the latest Xbox Series X and S consoles, but also the previous-gen Xbox One models. This wide compatibility can primarily be attributed to the fact that game streaming services have relatively low hardware requirements, thereby making it compatible across virtually all console hardware. The other reason is Microsoft’s aim to quickly expand the user base of Xbox Cloud Gaming. After all, very few people currently possess Xbox Series X/S consoles because these consoles have only been recently released, and their sale volumes have been constrained by the severe shortage of electronic components. Hence, the ability to quickly expand Xbox Cloud Gaming’s user base is contingent on adoption by current owners of Xbox One consoles, whose total cumulative sales are relatively high by now.
Going forward, Microsoft is expected to leverage the attraction of Xbox Cloud Gaming to draw consumers to purchase the Xbox Series X/S through the Xbox All Access installment payment plans. This is also why Microsoft is aggressively collaborating with and acquiring game developers, as having more games playable through Xbox Cloud Gaming will make the service more attractive to consumers.
Xbox Cloud Gaming will likely reduce the willingness of existing Xbox One owners to buy new consoles
Microsoft’s core strategy revolves around its platform and service. By attracting consumers through service first, Microsoft will then be able to raise the sales of its hardware. Put another way, increased hardware sales result in an expanded user base, which will further result in increased earnings through both platform and service.
Hence, the initial sales performances of the Xbox Series X/S are not a point of focus for Microsoft. If the company is able to expand its user base, Microsoft does not even necessarily need to ensure the popularity of the Xbox Series X/S. It can instead potentially release other modified models that are better suited for game streaming services or even simpler, dedicated game streaming boxes. However, in consideration of other services such as Xbox Live Gold, as well as earnings from players that do not subscribe to game streaming services, Microsoft must still maintain a range of game consoles that can compete with the PS5 in terms of specs.
Although Microsoft’s core strategy is in alignment with its software services for the PC market, such as Office and Windows, the heavy push for Xbox Cloud Gaming will inadvertently lower the console replacement demand of existing Xbox One owners. Furthermore, the difference in hardware specifications between the Xbox Series X and Xbox Series S will also complicate the software development process for game developers, in turn reducing the willingness of developers to create games for the latest Xbox consoles and affecting the sales performances of the Xbox Series X/S.
Therefore, it makes sense that despite the similar specs between the Xbox Series X and the PS5, their sales numbers differ wildly. At any rate, the Switch will remain the sales leader in the game console market in 2021, with the PS5 experiencing a gradual sales growth and the latest Xbox consoles lagging behind.
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TrendForce’s latest investigations find considerable discrepancy between prices for graphics DRAM products in the contract market and in the spot market. Quotes for graphics DRAM products continue to rise in the contract market as the severe undersupply situation persists. Furthermore, the supply fulfillment rates for orders from some medium- and small-size clients have been hovering around 30%. This undersupply situation is expected to persist through 3Q21, during which graphics DRAM contract prices are expected to rise by 8-13% QoQ. Regarding the spot market, on the other hand, the value of ETH experienced continued uptrend from the start of 2021 until May, thereby driving up the demand for graphics cards, regardless of them belonging to the newer or older series. At the height of the graphics card boom, spot prices of graphics DRAM products were up to 200% higher than contract prices. Demand from miners for graphics cards are expected to be relatively muted before cryptocurrencies return to their previous bullish trends, and the gap between the spot and contract prices of graphics DRAM products will likely narrow in 3Q21 as a result.
TrendForce expects four key factors to continue driving up graphics DRAM prices in the contract market. First of all, demand in the PC market remains high, particularly for gaming products. Secondly, DRAM suppliers’ production capacities allocated to most clients are constrained by the fact that Nvidia bundles its GPUs with graphics DRAM, meaning DRAM suppliers have prioritized capacity allocation to Nvidia as opposed to smaller clients. Thirdly, both the Xbox Series X and PS5 are equipped with GDDR6 16Gb chips, which is different from GDDR6 8Gb chips. As the two chips are non-interchangeable, once DRAM suppliers commit their production capacities for one, they can no longer produce the other using the same batch of wafers. Finally, since there has been a resurgence of server DRAM orders, DRAM suppliers are still prioritizing the production of these products as they are a mainstream market product. As various products each compete over limited DRAM production capacities, graphics DRAM contract prices are expected to undergo an increase going forward. In particular, medium- and small-size OEMs/ODMs may likely face double-digit percentages increases.
Sharp drop in values of cryptocurrencies has caused spot prices of GDDR5 and GDDR6 products to fall
Regarding the spot market, although spot prices for GDDR6 products has been undergoing a slight drop since May, they are still nearly 100% higher than the average contract prices. Conversely, there is almost no difference between spot and contract prices for GDDR5 products. Looking at the reasons behind the slide in spot prices of graphics DRAM products, a sharp drop in the values of cryptocurrencies is the most significant contributor apart from the excessively large difference between spot and contract prices. The recent bearish movement of cryptocurrencies has resulted in a sharp drop in incentives for miners. In turn, this has led to a corresponding drop for older graphics (such as the Nvidia GTX 1660, which features GDDR5 DRAM), which have no other sources of demand. GDDR5 prices hence entered a significant decline. With regards to newer graphics cards, however, there is still a baseline level of demand for them thanks to purchases by gamers. Furthermore, these newer graphics cards, much like the new generation of game consoles, feature GDDR6 DRAM. Therefore, due to the current demand for GDDR6 products, their price drop in the spot market is lower compared to GDDR5 products.
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